Read the 10 key takeaways from Icehouse Ventures CEO Robbie Paul, following the release of our Growth Fund I Annual Report.
Growth Fund I Annual Report – 10 Key Takeaways
- 1. NZ is producing great companies. A key question we faced when raising the fund in 2020 was if there were enough companies in New Zealand that merited growth capital. We were convicted that the answer was “Absolutely, yes.” To be fair to the skeptics, there were many fewer proof points than one could observe today. The commercial and technical wins of Halter, Dawn Aerospace, Hnry, Crimson, Tradify, Tracksuit, Sharesies, and Shuttlerock have truly put NZ on the map. Outside of our portfolio are many other Kiwi success stories like Kami, Auror, Robotics Plus, and Oritain.
- 2. “Venture capital is an asset class where the best assets choose their investors.” The tweet continues, “So spend less time trying to be a good picker and more time trying to be worth being picked.” We have seen a myriad of examples across 32 companies and 51 rounds including Tracksuit, Hnry, and Halter where founders have attracted way more capital than they could accept. A ubiquitous factor that influenced the founder’s allocations to prospective investors was relationship capital. All investors either have money, resources, experiences, connections, etc. or can claim to. In this context, most founders default to accepting capital from parties they know well.
- 3. Raise more than you think you need. Even established companies struggle to precisely model capital requirements and all of the opportunities and problems that emerge. Several companies were materially hamstrung by supply chain delays in the wake of covid. That Open Star and Mint were able to assemble parts from around the world to launch their facilities was incredible. In two other cases, companies experienced near-fatal technology recalls. In both cases, the companies were fortunate their recalls took place soon after significant capital raises. Had they happened months earlier then the prospects of a capital raise- and indeed survival- would have been low. In one instance the recall coincided with a major customer reneging on a contract that representing >50% of their revenue. It is unlikely this company would still be operating today had they not oversubscribed their round by >$5m.
- 4. Sometimes you must take a step backwards to move ahead. 19 of 32 companies undertook some form of a reduction in team size. Nine companies reduced their teams by more than a third. These processes introduce significant stress and disruption for all involved. They also introduce uncertainty. Can my product still be built in time? Will I ultimately undermine my future by reducing momentum? Will key relationships or knowledge be lost? Will it scare away some of the team that I would really like to retain? While all the founders have expressed regret the changes had to take place, most equally acknowledged that the end result was a more efficient and happier team that had a greater concentration of high performers.
- 5. A part of thriving is simply existing. Shuttlerock, Parrot Analytics, and Tradify are great examples. The brand awareness, industry recognition, customer relationships and retention, and team experience are enabling significant growth. These strengths generally only come with time. Tradify is a great example. While they had great traction in New Zealand and Australia, their launch in the UK required significant effort and time to build awareness and trust. Now they are established they have seen >50% year on year growth – and even my UK-based brother-in-law (a plumber) recognised my Tradify t-shirt : )
- 6. Runway can be stretched further than you think. For the five years leading up to 2023, the portfolio companies averaged a capital raise every 18 months. Typically these raises coincided with both growing ambitions and shrinking cash balances. To give time to achieve key milestones, most companies hold off raising capital until the latest possible moment. Following the peak of 2021, many companies needed to adjust their milestones and runway to reflect the malaise of the capital markets. Six companies have now stretched their runways by an additional 12 months or more through robust cash management and increased revenue.
- 7. It’s not all bad news out there. Despite the general cynicism in the market, the portfolio companies have added >$250m in annual revenue over the last few years. This growth comes from companies operating across geographies (LawVu in the US, Hnry in Aus), industries (Halter in Agtech and Crimson in Edtech), and business models (Saas like Tradify and medtech like The Insides Co).
- 8. Investing is about making a series of decisions. Growth Fund I started with relatively small investments in companies like Hnry, Halter, Dawn Aerospace, and Crimson. We then invested significantly more over successive rounds milestones, and years. More importantly, we expanded our investment as companies’ ambitions and possibilities expanded. The goal is not simply to invest in companies that are closer to their objective. It is to fuel them as they expand their objectives. Examples include Halter launching their Beef product, Hnry expanding into new markets, and Dawn Aerospace scaling the applications of their propulsion business.
- 9. Entrepreneurship is a force for good in this world. It’s hard to not be optimistic about the future when you work with companies that are addressing such massive problems. Within the Growth Fund I portfolio are Mint Innovation (extracting gold from e-waste), Nilo (repurposing waste plastic), Vertus Energy (accelerating biomethane production), Open Star (fusion energy), and Biolumic (using UV to increase agricultural yields).
- 10. Good things take time. As I say in the report, generating high-multiple cash returns is our top priority. Have we generated any yet? No. Nor should we have three years into this fund. As a general rule, if the likelihood and timing of a return was certain, then a high-multiple cash return would be competed away. As evidenced by the likes of Rocket Lab, PowerbyProxi, Vend, and many others, it can take >10 years for companies to deliver a consequential return. That’s the bad news. The good news is Growth Fund I started investing in companies like Halter, Tradify, Shuttlerock, and Crimson when they were 7+ years old.
Click through the Growth Fund I Report above and read the full article with the NZ Herald here.